Chapter 10. Investment in Visual Art: Evidence from International Transactions

This study uses international trade data to discern whether fine art is, on average, more an investment or a consumption good. Using a battery of novel measures, the chapter demonstrates that the flows of services embodied by visual artworks most closely resemble consumption services. A stylized prediction of the permanent income hypothesis is that consumption demand increases with rises in permanent income and the demand for investment increases with rises in temporary income. We find that international shipments of art are strongly correlated with trade in consumer goods, with the income of destination countries, and specifically with the permanent component of income changes. In contrast, there is little indication that art demand responds to temporary income shocks or that it even moves in tandem with other investments, implying that the investment motive for purchasing art is relatively weak.